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State pension set to hit £12,020 next year but millions will get £2,800 less!

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More than 12million retirees are on course get a pay rise of 4.5% from April 2025. They had previously hoped to get 5.7%, but as I reported on Tuesday, those hopes now appear to have been dashed and they’ll get £11.50 a month less.

Under the triple lock, the UK state pension rises each year by inflation, earnings or 2.5%, whichever is highest.

In April 2023, pensioners received a bumper 10.1% pay rise based on inflation, while this April they got 8.5%, in line with earnings growth.

Each year’s triple lock hike is based on the consumer price inflation figure from September the year before, and earnings growth over three months from May to July.

Inflation stood at 2.2% in July while earnings grew by 4.5% from April to June. It therefore seems almost certain that the triple lock earnings element will apply when setting next year state pension increase.

If earnings also rise by 4.5% in the three months to July, then that’s how much the state pension is likely to rise when the decision is confirmed in the middle of September.

This will lift the new state pension from £11,502 today to around £12,020 for those who qualify for the maximum amount.

However, millions of pensioners may get thousands of pounds less and will feel hard done by as a result.

It happens every time the state pension increases, causing fury and a rash of angry letters and emails to the Daily Express.

Many think this is plain unfair. So what’s happening?

The problem boils down to the fact that there are two state pensions, rather than one. Anyone who retired from April 6, 2016, will qualify for the single-tier new state pension, while older pensioners who retired before then get the basic state pension.

Both increase by the triple lock. The problem is that the basic state pension starts from a much lower point.

So each year’s increase is worth relatively less to those receiving it. Worse, the gap widens every year.

In April this year, the new state pension increased by £901 while the basic state pension rose by just £690.

The gap between the two widened by £211 on just one year to a staggering £2,688.

Next April, the new state pension will increase by £517 but the old basic state pension will rise by just £396.

The gap will have risen by another £122 to £2,810.

No wonder so many state pensioners feel aggrieved.

Many think it’s unfair that retiring just one day before April 6, 2016, could mean receiving £2,810 a year less than someone born afterwards. That’s equivalent to £54 a week.

However, the picture is more complicated.

How much you get in practice partly depends on how many years of qualifying National Insurance (NI) contributions or credits you have.

To get the full new state pension, both men and women need 35 years of NI. For the basic state pension, men originally needed 44 years of NI, and women needed 39 years. This was reduced to 30 years for both from 2010.

But an even more important factor is at play.

Many on the basic state pension get their income topped up by additional state pension, such as the state earnings-related pension scheme (Serps) or state second pension (S2P).

These are based on earnings so men have typically built up a lot more. Often they get MORE pension than those on the new state pension.

In February last year the average male basic state pensioner got £9,291 a year, marginally above the £9,128 they got from the new state pension.

However, women on the basic state pension averaged a meagre £7,951 a year, because they have much less additional state pension. Women do better on the new state pension getting £8,872.

Typically, women do better on the new state pension, but men do better on the old one. But there are huge variables in that.

Pensioners on low incomes may be able to claim pension credit, which guarantees a minimum income of £11,343.80 a year for singles, and £17,313 for couples. Yet almost a million of the poorest fail to claim.

The new state pension was designed to be simpler but the switch has inevitably produced both

winners and losers. Understandably, the losers aren’t happy.

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